Western Union's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Western Union (WU)

Q4 2011 Earnings Call

February 07, 2012 4:30 pm ET

Executives

Michael A. Salop - Senior Vice President of Investor Relations

Hikmet Ersek - Chief Executive Officer, President and Director

Scott T. Scheirman - Chief Financial Officer and Executive Vice President

Analysts

Tien-Tsin T. Huang - JP Morgan Chase & Co, Research Division

Glenn Fodor - Morgan Stanley, Research Division

Ashwin Shirvaikar - Citigroup Inc, Research Division

Kartik Mehta - Northcoast Research

Darrin D. Peller - Barclays Capital, Research Division

Jason Kupferberg - Jefferies & Company, Inc., Research Division

Julio C. Quinteros - Goldman Sachs Group Inc., Research Division

James F. Kissane - Crédit Suisse AG, Research Division

Robert P. Napoli - William Blair & Company L.L.C., Research Division

Robert P. Napoli - Piper Jaffray Companies, Research Division

David Togut - Evercore Partners Inc., Research Division

Timothy W. Willi - Wells Fargo Securities, LLC, Research Division

Daniel R. Perlin - RBC Capital Markets, LLC, Research Division

Bryan Keane - Deutsche Bank AG, Research Division

Presentation

Operator

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Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2011 Western Union Earnings Conference Call. My name is Jeremy, and I'll be your operator for today. [Operator Instructions]

I would now like to turn the conference over to your host for today, Mr. Mike Salop, Senior Vice President of Investor Relations.

Michael A. Salop

Thank you. And good afternoon, everyone. On today's call, Hikmet Ersek, our President and Chief Executive Officer; and Scott Scheirman, our Chief Financial Officer, will discuss 2011 fourth quarter and full year performance, and our 2012 outlook. Following the remarks, we will open the call for questions.

The slides that accompany this call and webcast can be found at westernunion.com under the Investor Relations tab and will remain available after the call. Additional operational statistics have been provided in a supplemental table with our press release.

As a reminder, today's call is being recorded and our comments include forward-looking statements. Please refer to the cautionary language and the earnings release and in Western Union's filings with the Securities and Exchange Commission, including that 2010 Form 10-K for additional information concerning factors that could cause actual results to differ materially from the forward-looking statements.

During the call, we will discuss some items that do not conform to generally accepted accounting principles. We have reconciled those items to the most comparable GAAP measures on our website, westernunion.com, under the Investor Relations section. All statements made by Western Union officers on this call are the property of The Western Union Company and subject to copyright protection. Other than the replay noted in our press release, Western Union has not authorized and disclaims responsibility for any recording, replay or distribution of any transcription of this call.

I would now like to turn the call over to Hikmet Ersek.

Hikmet Ersek

Thank you, Mike. And welcome, everyone. Overall, 2011 was a good year and we realized many accomplishments. We exceeded our earnings per share outlook from the beginning of the year and delivered our highest full-year revenue rate since 2008. This was accomplished in a challenging environment that included the Arab Spring, economic troubles in Europe and high global unemployment.

We believe that we gained cross-border market share, each of our consumer-to-consumer regions grew and the repositioning of our U.S. domestic money transfer business, which began in late 2009, continue to pay off.

We advanced our European strategy of being closer to the consumers and optimizing our operating model by completing the Angelo Costa and Finint super-agent acquisitions. In Asia, we've further expanded our network and now have approximately 200,000 locations across China, India and the rest of APAC. With our bank license, we also laid the groundwork for expansion in Brazil and continued the turnaround in consumer bill payments.

In business-to-business payments, we completed the Travelex Global Business Payments acquisition in November, which gives us a strong foundation for a second leg of growth well into the future. Within C2C, our electronic channels business continue to advance in 2011 with 35% revenue growth, indicating that our combination of physical network with digital send and receive options is matching consumer needs in the marketplace.

We also signed a global prepaid and money transfer agreements with MasterCard, which will help us globalize prepaid services and allow us to leverage MasterCard's world-class global electronic network. Late in the year, we began our launch of prepaid cards in Europe.

Other accomplishments in 2011 include completion of the restructuring activities we announced in mid- 2010, which delivered approximately $55 million in cost savings. And also, we resolved our international tax position with the IRS.

We also maintained strong cash deployment in 2011. In addition to the acquisition, we repurchased $800 million of shares and paid almost $200 million in dividends. So 2011 was a great year.

As we enter 2012, we are expecting near-term challenges, driven largely by economic conditions. I've just returned from the world economic Davos where I had the chance to talk to many business leaders, and the general expectation is Europe will be challenging in 2012.

Our business has held up well in countries such as the U.K., France and Germany. However, Italy and other parts of the Southern Europe have softened. We also will face some challenges in Mexico and Russia in 2012 as we adjust our strategies in these countries.

But our focuses on execution and positioning the company for future growth, we have defined our long-term opportunities and growth strategies, and now we must execute successfully against them. Our long term vision is to become the premier financial service provider for the underserved. This includes our current customer base, but also new Consumer and Business Customer segments that are underserved.

There are 2 billion people worldwide who are considered under-banked or completely un-banked. Western Union's core remittance business charges to the 200 million who migrate to other countries as well as their families back home. However, all consumers have financial needs. And we plan to utilize our brands, global network and infrastructure to provide more financial services to the underserved over time. This could mean in the form of prepaid or stored value or distributing third-party financial and related services throughout our global network.

I met with many potential global business partners in Davos, and there are great opportunities to leverage our global network and brand. There are many other types of underserved customers that could benefit from the services we offer. Examples include students who need to make some tuition payments in foreign currency; travelers who need cash; and small businesses that make cross-border payments.

Last year, we organized our business around 3 key growth areas: first, global consumer financial services, which include core money transfer; second, new ventures and services, which includes expansion of our electronic channels; and third, business-to-business payments.

We now have a strategic roadmap in place that will allow us to accelerate our businesses over the next several years. In 2012, we will focus on executing against those plans.

We have 3 main areas of focus this year: expanding our network and focusing on adding and retaining consumer and consumer money transfer; creating a digital infrastructure to drive our electronic channels business; and growing the B2B business and successfully integrating the Travelex acquisition position. I would like to spend a few minutes talking about each of these areas.

In core money transfer, over the next 2 years, we want to transition from being a transaction-based to becoming a truly customer-centric organization with added convenience and more choice. We have a long-term vision for the core business of 1 million agent locations, further market share increases and margin improvement from growth and efficiencies.

Over time, we want to further increase loyalty by continuing to improve the retail experience with simple, high-quality transactions at the right value. We want to increase share of wallet by leveraging our consumer database and providing access to new services. And we want to add new consumers through expanding our network with strategic agents and offering adjacent services, such as account-based money transfer, direct-to-bank or card, ATM money transfer and intra-services in key markets. To reach these goals, we will need to invest over time in salespeople, focused marketing and technology.

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